Parent PLUS loans are educational loans and the borrower can get an income tax deduction. When borrowers review their tax deductions, they can deduct up to $2,500 per year in interest paid on the Parent PLUS loan.
If you borrowed money in the form of a Parent PLUS Loan to finance your child's college education, then you may be wondering if you qualify for any tax breaks. Good news: As a Parent PLUS borrower, you are eligible to claim the Student Loan Interest Deduction on your taxes.
You can't deduct qualified student loan interest payments you paid on a loan in your dependent's name. Neither of you can deduct the loan interest if both of these are true: You claim the student as a dependent. You pay the student's loan interest.
Public Service Loan Forgiveness for Parent PLUS Loans
Parent borrowers may be eligible for Public Service Loan Forgiveness (PSLF) after making 120 qualifying payments (ten years). Parent PLUS loans are eligible if they are in the Direct Loan program or included in a Federal Direct Consolidation Loan.
Parent PLUS loans are federal student loans taken out by a parent or grandparent to help pay for their child or grandchild's college education. More than 3.7 million families owe at least $104 billion, per the report. These loans were developed to give middle-class families another college financing option.
But, Federal Parent PLUS loans are not directly eligible for income-driven repayment plans. Instead, one must consolidate the Federal Parent PLUS loans into a Federal Direct Consolidation loan. The consolidation loan is then eligible for income-contingent repayment.
Federal parent PLUS loans can never be transferred to the student. If you borrow a parent loan for your child's education, you're the only one legally responsible to repay the debt.
Your parent's PLUS loan will be discharged if your parent dies or if you (the student on whose behalf your parent obtained the loan) die.
There are two main ways to get parent PLUS loan forgiveness: through the Public Service Loan Forgiveness program and through the Income-Contingent Repayment plan. Public Service Loan Forgiveness involves a lot of red tape but is the better option if you qualify.
Ineligible Loans
In particular, Federal Parent PLUS loans in the FFEL program, other than the ECASLA loans and defaulted loans, are not eligible. The following loans are not eligible for the payment pause and interest waiver: Federal Perkins Loans.
1. You can borrow as much as you need. Unlike other types of federal student loans, Parent PLUS Loans have virtually no limits when it comes to borrowing. You can borrow up to the cost of attendance minus any other financial aid received.
The school will first apply parent PLUS loan funds to the student's school account to pay for tuition, fees, room and board, and other school charges. If any loan funds remain, your child's school will give them to you to help pay other education expenses for the student.
For your 2021 taxes, the American Opportunity Tax Credit: Can be claimed in amounts up to $2,500 per student, calculated as 100% of the first $2,000 in college costs and 25% of the next $2,000. May be used toward required course materials (books, supplies and equipment) as well as tuition and fees.
When you apply for a Direct PLUS loan for your child, the government will check your credit report, but not your income or debt-to-income ratio. In fact, it does not even consider what other debts you have. The only negative thing it looks for is an adverse credit history.
Benefits of the Parent PLUS Loan
Pre- and overpayment: Some borrowers choose to make extra payments to pay down parent PLUS loans more quickly and to reduce the amount of interest repaid. There is no penalty for paying extra on PLUS Loans.
Yes, you can pay off Parent PLUS Loans early. Parent PLUS Loans are federal student loans, which can be paid off any time with no prepayment penalty. You may choose to pay off Parent PLUS Loans early, or you may decide to use those funds to save more for retirement.
Only the parent borrower is required to pay back a Parent PLUS Loan, as only the parent signed the master promissory note for the Parent PLUS Loan. The student is not responsible for repaying a Parent PLUS Loan. They're under no legal obligation to do so.
Any outstanding balance on your loan will be forgiven if you haven't repaid your loan in full after 20 years or 25 years, depending on when you received your first loans. You may have to pay income tax on any amount that is forgiven.
But when it comes to student loan debt and divorce, the person who took out the loan is typically responsible for paying the loan, even in divorce. Only one of the spouses can sign the promissory note on Parent PLUS Loans, so technically that's who is responsible for the student loan in the case of divorce.
Transfer the loan to a spouse or child
Your spouse or child can transfer the Parent PLUS Loan into their name if they have a good credit score (e.g., 680+) and a steady income that shows they can afford to pay back the college debt plus their living expenses.
In other words, if a student graduates in May, the first payment on the Parent PLUS loan would not be due until November. Interest accrues while the student is in school, but parents can choose to pay the interest as they borrow.
The cost of a personal computer is generally a personal expense that's not deductible. However, you may be able to claim an American opportunity tax credit for the amount paid to buy a computer if you need a computer to attend your university.
The American Opportunity tax credit is based on 100% of the first $2,000 of qualifying college expenses and 25% of the next $2,000, for a maximum possible credit of $2,500 per student. For 2021, you can claim the American Opportunity Tax Credit of up to $2,500 if: Your student is in their first four years of college.